Exchange Rate (Hansard, 5 July 1973)

§ 2. Dr. Gilbert
asked the Chancellor of the Exchequer if he will publish a weekly series showing fluctuation of the £sterling against a weighted average of the United Kingdom's major trading partners.

§ Mr. Nott
No, Sir. The monthly changes in the effective exchange rate 699 are now being published in the Treasury's Economic Progress Report.

§ Dr. Gilbert
I am not surprised at that answer. Has the hon. Gentleman's attention been drawn to the fact that, as my hon. Friend the Member for Birmingham, Northfield (Mr. Carter) remarked a few moments ago, the external value of the pound is falling even faster than the internal one? In the last six weeks it has been falling at the rate of about 1 per cent. a week. This must be added to the increase in world prices to which hon. Members opposite are always referring. The worst is yet to come.

§ Mr. Nott
As the hon. Gentleman himself said, I have answered that question. There has been a general shift in the relationship of one currency to another. This is still going on. Foreign exchange markets are unsettled. I do not think there is anything I can reasonably add to that.

§ Mr. Ridley
Could we not make a contribution to reducing the money supply and stabilising the value of the pound by cutting the grant to the National Institute of Economic and Social Research?

§ Mr. Nott
Perhaps I can answer the first part of my hon. Friend's supplementary question by asking him what exactly he means by "stabilising the rise" in the money supply. In the last month for which figures are available—I speak from memory—M1 rose by about ½ per cent. and M3 by around ¼ per cent. I cannot say that one month's figures are indicative of the trend, but I do not think that my hon. Friend's implied criticism is fair.

§ Mr. Healey
Will the Minister of State confirm the figures given in the Financial Times and The Times today, showing that since the Smithsonian agreement only 18 months ago there has been a devaluation of the pound of over 151 per cent., which is substantially more than the devaluation that occurred in 1967?

§ Mr. Nott
I do not think that the true situation can be compared. We live in an environment in which many of the principal currencies are floating. Moreover, unlike what happened in 1967, we are pursuing a policy of expansion. The previous Government pursued a policy of 700 stagnation. I have no doubt that the shift in currency relationships will improve the competitive position of British industry.

§ 10. Mr. Coombs
asked the Chancellor of the Exchequer what percentage rise in the cost of living can be attributed directly or indirectly to the floating of the £sterling in June, 1972, and subsequent exchange rate realignment.

§ The Chief Secretary to the Treasury (Mr. Patrick Jenkin)
It is impossible to distinguish accurately the simultaneous effects of the sterling float and the recent sharp rises in world commodity prices. Nevertheless, it can be said that the rise in world commodity prices accounts for far more of the rise in import prices than the sterling float.

§ Mr. Coombs
What are the preconditions for returning to a stable sterling parity? How does my right hon. Friend view the prospects of a joint EEC float?

§ Mr. Jenkin
My right hon. Friend the Chancellor has on many occasions stated the conditions on which we would be prepared to join the European float. We are studying the Commission's report on reserve pooling and related matters. The proposals my right hon. Friend put to our partners in the Community in March would have meant a greater step towards economic and monetary union than our partner countries were then prepared to accept.

§ Mr. Edwin Wainwright
Does the Minister realise that because of the floating of the pound—or shall we term it the devaluation of the pound?—members of Her Majesty's Forces in the EEC countries have had their income devalued by at least £3 a week? What will the Government do about these poor people, who are having to pay a great deal more for the goods they buy than they were before the floating of the pound?

§ Mr. Jenkin
While I do not accept the hon. Gentleman's figures, I acknowledge his point, and the Government have the matter under consideration.

§ Mr. Powell
How can the movement of a floating exchange rate be a cause of domestic inflation?

§ Mr. Jenkin
I should have thought it was evident to those of the meanest intelligence that the movement downwards of the exchange rate must put up, relatively, the domestic price of imports. As I am sure my right hon. Friend realises, the wholesale import prices of basic materials and fuel have risen by 20 per cent. in the past six months, and food import prices have risen by 20 per cent.–25 per cent. Only a very small part of that is due to the movement of the parity of the pound.

§ Mr. Healey
If I may contribute to the right hon. Gentleman's seminar for his right hon. Friend, may I ask whether the Minister agrees that, as import prices on a weighted average of foreign currencies have gone up by 15½ per cent. in the past 18 months, since the Smithsonian agreement, purely as a result of the devaluation of the pound, between 4 per cent. and 5 per cent. of the percentage increase in the cost of living must be attributable to that devaluation?

§ Mr. Jenkin
What the right hon. Gentleman says is totally untrue in that, as my hon. Friend the Minister of State said earlier, there have been many movement of currencies throughout the world. Simply to regard everything as part of the devaluation of the pound, as the right hon. Gentleman claims, is sheer nonsense.